If you were an international body within the financial space and you identified something that could pose a “threat to global financial stability” and had the ability to “rapidly escalate”, how would you get that message across to the world? Would you even need to… or would it be enough to inform policy and decision makers of the threat? We hope so, because that’s exactly what the FSB has done, and those are direct quotes from their recently published report titled Assessment of Risks to Financial Stability from Crypto-assets.
Behind The Veil
Sounds ominous… but so does everything else these days. So, to put things into perspective, let’s look at the FSB, who they are, where they came from, and why we should care at all about their report.
The Financial Stability Board (FSB) was created in 2009 as an international body to monitor and make recommendations about the global financial system, ultimately increasing the stability of international financial markets. Basically, the board helps make sure the financial system runs smoothly through the promotion of oversight and regulatory policies.
The board is the predecessor to Financial Stability Forum (FSF), which was founded in 1999 during a G7 summit with the aim of lubricating tensions between central banks and ministries of finance. So… while it was created fairly recently, it’s an outgrowth of an older body.
This is important to know because the FSF was made up of 12 nations agreeing to work together to facilitate transactions and foster global financial cooperation between financial institutions and central banks. The venture worked great but needed to expand to assimilate additional countries and emerging economies… thus, the transition from the FSF to the FSB.
So, the expansion saw the body expand from 12 members with the FSF to 24 member countries with the FSB… and the FSB coordinates national financial authorities and international standard-setting bodies as they develop regulations that (hopefully) facilitate a global, level playing field through the implementation of policies across the financial landscape.
Once the policies are developed and adopted, they are implemented down at regional levels. And there are some very powerful institutions that are members… including the International Monetary Fund, the Bank for International Settlements, the World Bank, and countries including China, United States, Canada, Brazil, Hong Kong, Saudi Arabia, and South Africa.
What They Said
But enough about that, let’s get to the FSB report published in February… which goes over the vulnerabilities posed by unbacked crypto assets, including financial sector exposures, wealth effects, confidence effects, and the use of crypto in payments and settlements. It also looks at the vulnerabilities around stablecoins, and postulates on their potential future within the monetary system.
The report presents the FSB’s view on recent developments in the crypto market and their implications for global financial stability… and keep in mind, this was written and put out before the big crash in the crypto space this year… given the lessons learned over the last few months, if this were written today, it’s possible the warning would be even more dire.
According to the FSB, we must implement regulations, period… if we are going to save our financial system from the risks presented by crypto. Officially, the FSB are big proponents of strapping down some of that wild crypto energy through plenty of regulation in the space… “threat to global financial stability” keeps ringing in our ears.
Regulations To Watch
The FSB has called for an effective regulatory framework to be implemented around crypto-asset activities to ensure they are subject to uniform regulatory outcomes. They’ve asserted, rightfully, that crypto markets must have oversight equal in proportion to the threats they pose globally.
So, the FSB is making proposals, and it couldn’t happen at a more fitting time… especially in conjunction with other important items happening this fall, including the rollout of ISO 20022. In October, the FSB will submit a report to the G20 that will include recommendations for promoting consistent, international regulatory and supervisory approaches to crypto assets. It’s going to be huge…
The recommendations, if all goes well, will lead to regulations that will finally allow regulators to show their fangs and claws in the crypto space. What’s important to know here is that these proposed regulations will be for global oversight… the recommendations will cascade down through the financial space. Expect to see it.
Fast-Forward To The Future
It seems this fall is going to be monumental for digital assets… crypto, stablecoins, CBDCs… it’s a lot to take in. Things are happening so fast, on such a large scale, that it’s hard to know where to look sometimes to see how it all fits together… and that’s where we come in.
The future of money is digital, and we’re going to continue to bring you information from the space that isn’t just trendy… we’re bringing you information from a structural perspective, so you’re adequately equipped to make beneficial decisions for yourself, for your family, and for your nest egg. Your future is our future, and we hope you keep coming back and learning with us.